A thought has been torturing Microsoft of late, and that thought emerges from the business model of Google. Microsoft has long pioneered the idea of giving away a new application as an "operating system feature" and cornering a market. Google gives away applications because it always leaves a door open for advertisers to benefit from them.

It is this loophole that Microsoft moved to close this week when it announced its own new approach to advertising, with a new adCenter set of applications that will allow both MSN carried advertising, and in a direct aping of Google Adwords, other websites, to use advanced demographic data.

Yusuf Mehdi, senior vice president of the MSN Information Services & Merchant Platform division, opened this week's Advertising Week conference declaring that the system has gone live in France this week, and went live in Singapore at the end of August and would go to test in the US in October.

The boast is that adCenter can focus not just on the search term used by a person on the MSN search engine, but can also factor in geographic location, gender, age range, time of day and day of week, and suggests keywords based on the desired audience.

An example given was the if a man is searching for flowers he may need a florist to buy flowers for his wife or girlfriends, but that when a woman keys in flowers, she is really looking for a gardening store.

Not sure we can agree with that, but let's turn it around.

If an advertiser says: "Our buying audience is 75 per cent men," then it can show its ads to men either 75 per cent of the time, or 100 per cent.

The advertising technology that Microsoft used is supplied by Yahoo. And gradually between October and next Spring, the new systems will take over the ad serving responsibilities on MSN from the Yahoo software.

The simple truth is that not only is Google searching currently more effective and preferred over MSN search, but it has found itself in a growth area that promises to fuel its corporate growth for the next five years, as advertisers turn away from the difficult to prove ability of hyper-expensive TV advertising, towards the feedback and interaction of the internet. If Google maintains its market share of web advertising, it can continue to grow unhampered and profitable for some time, giving it ample opportunity to take potshots at Microsoft. Microsoft has to move now to claw back market share before this happens.

Some of the tools added this week include the ability to assist advertisers by suggesting alternative keywords based on the content of their own website; the ability to predict the type of search customer that will look for specific keywords, based on past history; and the service has a cost estimator that helps advertisers predict what a campaign will cost. At present when they buy advertising around a keyword search, they have no way of knowing how many people will search that word and can end up with unexpected bills if they are too successful.

Also new is a Campaign Optimization system to refine budget allocations and keywords and a Post Sales Audience Intelligence & Reporting system.

MSN currently says it has 420 million unique users worldwide per month in 41 markets and 21 languages.

Can we picture a Microsoft that offers software free, paid for by advertising?

Well no, but it needs rapidly to find a way of carving out ad market share, in order to stop Google becoming that nightmare competitor that it fears, a company that can give an operating system away which is paid for by advertising.

Faultline is published by Rethink Research, a London-based publishing and consulting firm. This weekly newsletter is an assessment of the impact of the week's events in the world of digital media. Faultline is where media meets technology. Subscription details here.